EXPLANATORY MEMORANDUM

EXPLANATORY MEMORANDUM

1 Minimum Wage Bill 2013 (No: of 2013) EXPLANATORY MEMORANDUM The Minimum Wage Bill would implement proposals for workers in the Falkland Islands to be guaranteed a minimum wage for their work. This Explanatory Memorandum is intended to assist readers of the Bill by providing a detailed explanation of the Bill’s provisions. The Bill has 34 clauses and 2 Schedules. It forms part of a package of draft legislation that also includes a draft order and two sets of draft regulations dealing with specific issues – copies of the drafts are also being gazetted with the Bill.

The Bill is divided into 17 Parts: • Part 1 deals with the title of the proposed Ordinance (the Minimum Wage Ordinance) and the procedure for bringing it into force.

• Part 2 defines a number of words and phrases used elsewhere in the Bill. Key terms that are defined in Part 2 include: “worker”; “eligible work”; and “pay reference period”. • Part 3 deals with the entitlement of a worker to a minimum wage (and the obligation on employers to make additional payments if the amounts that workers are treated as having been paid are less than the minimum wage to which they are entitled). • Part 4 deals with minimum wage rates and includes duties for the Governor to set minimum wage rates for adults (those aged 18 or over) and young persons (those aged 16 or 17) and for those rates to be kept under review.

• Part 5 deals with the calculation of the hours worked by a worker for the purposes of the minimum wage. This would be dealt with in the draft Minimum Wage (Calculation of Hours Worked) Regulations. • Part 6 deals with the calculation of the amount treated as having been paid to a worker for the purposes of the minimum wage. This would be dealt with in the draft Minimum Wage (Calculation of Amount Paid) Regulations. • Part 7 deals with the obligation on employers to keep records for minimum wage purposes and the rights of workers to access their records.

• Part 8 deals with the right of workers not to suffer adverse consequences because of their entitlement to a minimum wage or because of action they take to enforce their rights.

2 • Part 9 deals with procedures by which workers can enforce their rights in the Summary Court – however, it is intended that court action should only be a last resort. • Part 10 deals with the burden of proof in minimum wage cases. • Part 11 deals with appeals from the Summary Court in minimum wage cases. • Part 12 deals with restrictions on contracting out of the minimum wage legislation – attempts to contract out would not be effective but it would be possible to settle claims out of court if they arise.

• Part 13 deals with publicity for the minimum wage legislation, guidance for employers and workers and the information to be given by employers to their workers.

• Part 14 deals with consequential amendments, including an amendment to the Employment Protection Ordinance (Title 32.3) dealing with dismissals relating to the minimum wage. Other consequential amendments could be made if necessary. • Part 15 would allow for transitional provisions to be made. • Part 16 makes it clear that the minimum wage legislation binds the Crown and would apply to the Crown as an employer.

• Part 17 would repeal the Labour (Minimum Wage) Ordinance (Title 32.5), which dates from 1942. Part 1 – Introduction Under clause 2, the Ordinance would not come into force immediately, even if the Bill is passed. It would only come into force when a notice (or series of notices) is published in the Gazette to bring it into force (either all at once or in stages). Part 2 – Interpretation Clause 3 defines a number of words and phrases that are used elsewhere in the Bill. It also contains indexing references to other provisions in which words or phrases are defined. Clause 4 defines “work” and related expressions: it provides that someone who is performing a service or services is doing work.

Clause 5 defines “worker”, which is a key concept in the minimum wage legislation: • The primary definition of “worker” is tied to the concept of a “relevant work contract” (which is itself defined in clause 3 and includes a contract of service or one of apprenticeship, but also includes some other contracts under which work is done).

3 • However, Schedule 1 deals with special cases: o Paragraph 1 makes it clear that those employed by FIG or the UK Government can be workers – however, not all work for FIG or the UK Government is eligible work (and Schedule 2 deals with that).

o Paragraph 2 deals with agency workers. o Paragraph 3 deals with workers whose employers are themselves employed (and who do work for that ultimate employer). o Paragraph 4 deals with home workers. • Other special cases could be dealt with in subsidiary legislation – although there are no current plans to do that.

Clause 5(3) would allow the Governor (who would normally be acting on the advice of Executive Council) to amend Schedule 1. Clause 5(4) would allow the Governor (again, normally, acting on the advice of Executive Council) to make orders dealing with special cases. Clause 6 defines “eligible work”, which is another key concept in the minimum wage legislation: • The primary definition of “eligible work” is work that is done in the Falkland Islands by someone who is a worker under the previous definition and who is doing it under a relevant work contract.

Work that is not done under a relevant work contract (eg because it is done by someone under a purely informal arrangement) is not covered by the minimum wage.

• However, Schedule 2 deals with special cases: o Paragraph 1 deals with the territorial scope of the minimum wage and provides that there are only two situations in which the minimum wage applies to work done away from the Falkland Islands or outside the 12 mile limit: The first exception covers temporary work outside the Falkland Islands by someone who normally works in the Falkland Islands.

The other exception covers the offshore minerals industry and its support operations. o Paragraph 2 deals with work on board vessels. It excludes the crew of fishing vessels from the minimum wage and that exception also applies to work on board other vessels (unless they normally operate in Falkland Islands waters or are supporting the offshore minerals industry).

4 o Paragraphs 3 to 10 deal with other exceptions from the minimum wage – these exceptions cover: service in the UK armed forces, the Falkland Islands Defence Force and the cadet forces; work done as part of the Entry to Employment programme or the Employment Programme (or similar programmes or schemes that might operate in the future); short-term work experience; voluntary work; work done by resident members of a religious or similar community; work done by prisoners as part of the prison regime; work done under a community service order imposed by a court; and work done as part of family life by a member of the family or someone who is treated as being part of the family.

• Other special cases could be dealt with in subsidiary legislation – although, again, there are no current plans to do that. Clause 6(3) would allow the Governor (normally, acting on the advice of Executive Council) to amend Schedule 2. Clause 6(4) would allow the Governor (again, normally, acting on the advice of Executive Council) to make orders dealing with special cases. Clause 7 defines “pay reference period”, which (again) is a key concept in the minimum wage legislation: • A pay reference period could not be longer than 1 month. • However, whenever a worker is paid for a period that is shorter than 1 month (which might be, for example, because: the worker is paid weekly or fortnightly; the work is casual or short term; or the payment covers part of a month at the start or end of a contract), the pay reference period would be the same as the period for which the worker is paid.

The effect of clause 11(2) would be that, whenever a worker’s 18th birthday falls during a pay reference period, it would have to be split into two: up to the worker’s 18th birthday; and from then on.

5 Part 3 – Entitlement to minimum wage Clause 8(1) would establish the right of workers aged 16 or over to a minimum wage for their eligible work. Clauses 8(2) and 8(3) provide for the amount of the minimum wage for a pay reference period to be calculated using a formula based on multiplying an hourly minimum wage rate by the number of hours worked. The minimum wage rate used in that formula would depend on the worker’s age: under clause 11, there are separate rates for those aged 18 or over and those aged 16 or 17. The hours worked would be calculated using regulations made under clause 14.

A detailed explanation of how it is proposed this would be done is set out at the end of the draft Minimum Wage (Calculation of Hours Worked) Regulations.

Under clause 9(a), the amount that a worker would be treated as having been paid for minimum wage purposes would not be the same as the amount the worker actually receives in cash or by cheque or bank transfer. Instead, it would be calculated using regulations made under clause 15. A detailed explanation of how it is proposed this would be done is set out at the end of the draft Minimum Wage (Calculation of Amount Paid) Regulations. Under clause 9(b), the amount that a worker is treated as having been paid must not be less than the minimum wage calculated using the formula.

If it is less, clause 10 would create an entitlement for the worker to an additional payment of the difference.

If necessary, proceedings could be brought in the Summary Court under clause 20 to claim the additional payment – however, it is intended that court proceedings should be a last resort. Part 4 – Minimum wage rates Under clause 11(1), there would be two different minimum wage rates: • For workers aged 18 or over, there would be a minimum wage rate for adults – it is proposed that this would initially be £5.05 per hour.

• For workers aged 16 or 17, there would be a minimum wage rate for young persons – it is proposed that this would initially be £3.10 per hour. Because the two different rates involve an element of age discrimination, consideration has been given to the requirements of section 16 of the Constitution (which prohibits unjustified discrimination in Falkland Islands legislation). It is considered that the difference can be justified on the basis that younger workers are generally not as competent or experienced as adult workers and so are less valued by employers.

6 Clause 11(2) deals with the specific situation in which a worker’s 18th birthday falls during a pay reference period.

Under clause 12, the Governor would have to make an order to set the minimum wage rates. A draft of the order setting the two rates is gazetted separately and the Governor would make this order on the advice of Executive Council. Under clause 13, the minimum wage rates would have to be kept under review and the Governor (normally, acting on the advice of Executive Council) would be able to change the minimum wage rates by order.

To ensure that employers are given advance notice of changes to minimum wage rates, clause 13(3) provides that changes cannot come into effect for at least 3 months after they have been published. Part 5 – Calculation of hours worked Under clause 14, the Governor would have to make regulations about the way in which the hours of eligible work done by a worker are calculated for minimum wage purposes. A draft of the regulations is gazetted separately and the Governor would make these regulations on the advice of Executive Council.

In summary, hours spent working, training and travelling in the course of work would count as hours of eligible work but hours spent travelling between home and work would only count if the travel forms part of the worker’s duties.

If necessary, the regulations could be amended or replaced in the future – if doing that, the Governor would normally have to act on the advice of Executive Council. Part 6 – Calculation of amounts treated as having been paid Under clause 15, the Governor would have to make regulations about how to calculate the amount a worker is to be treated as having been paid for minimum wage purposes. A draft of the regulations is gazetted separately and the Governor would make these regulations on the advice of Executive Council.

There is a detailed explanation at the end of the draft regulations about how these calculations would be done. However, in summary, the amount that a worker is actually paid would be adjusted to take account of payments that would not count for minimum wage purposes and certain deductions that would be added back for minimum wage purposes. If necessary, the regulations could be amended or replaced in the future – if doing that, the Governor would normally have to act on the advice of Executive Council. Part 7 – Record keeping by employers (and worker’s right to access employer’s records)

7 Under clause 16, employers would have to keep records for minimum wage purposes.

There would be no prescriptive requirements in the legislation itself about what records are kept and how they are kept – the requirement would be outcome-based in that an employer’s records would have to be adequate enough for the employer to be able to show to a worker that the minimum wage has been paid to that worker. However, it is envisaged that FIG would be issuing guidance to employers about the minimum wage legislation and that this will include guidance about how to comply with the requirement to keep records.

Failing to keep proper records would not be a criminal offence but, in the event of a dispute, the Summary Court would be able to award damages (of up to £5,000) and/or costs against an employer who had not kept proper records or could not show that the minimum wage had been paid. Clause 17 would give workers a right of reasonable access to their employer’s records for the purpose of confirming that the minimum wage has been paid. It is envisaged that FIG would be issuing guidance about the minimum wage legislation to workers as well as employers and that the guidance will also cover what is reasonable (and what is not) in relation to the right of reasonable access to records.

If an employer does not give a worker access to records, that would not be a criminal offence but, in the event of a dispute, the Summary Court would be able to award damages (of up to £5,000) and/or costs against an employer who had not given a worker reasonable access to records. Clause 18 would establish a formal process for dealing with requests for access to records – although it is hoped that most requests could be dealt with informally: • If a worker is not given access to records on the basis of an informal request, it would be possible for the worker to make a formal request by giving the employer a production notice.

• An employer who has received a production notice would have 7 days in which to either: o arrange for the records to be made available to the worker; or o issue a refusal notice, explaining why the request is unreasonable. • Unless a refusal notice is issued, access to the records would normally have to be given to the worker within 14 days from the date on which the employer received the production notice. Again, it is envisaged that the guidance for workers and employers will deal with this process.

8 As a last resort (and it is hoped that it would only ever have to be a last resort), disputes could be resolved by a complaint to the Summary Court under clause 21. Part 8 – Worker’s right not to suffer detriment relating to minimum wage Under clause 19, workers would have the right not to suffer adverse consequences just because they have the right to a minimum wage or do anything to exercise their rights under the minimum wage legislation. Clause 19(2) is intended to make it clear that the right not to suffer adverse consequences for minimum wage related reasons includes not just the right not to be dismissed but also the right not to suffer other adverse consequences.

Clause 19(3) is intended to make it clear that it would not just be going to court under the minimum wage legislation (or threatening to go to court) that would be covered by the protection from adverse consequences – exercising rights under the minimum wage legislation in other ways and insisting on them would be protected too. Protection from dismissal is dealt with in clause 22 and an amendment to the Employment Protection Ordinance that would be made by clause 30. Protection from other adverse consequences is dealt with in clause 23. Part 9 – Enforcement by workers of their rights Clause 20 deals with proceedings in the Summary Court for workers to claim additional payments under clause 10 if they believe that they have not been paid the minimum wage and have not been able to resolve the situation in another way: • Clause 20(3)(a) deals with the additional payments themselves: if the Summary Court agrees with the worker that they are due, it would order the employer to pay them – however, there would be a time limit and the Summary Court would not be able order additional payments from more than 6 years before the proceedings were brought.

• Under clause 20(3)(b)(i), the Summary Court would also be able to award interest on the additional payments at 8% per year over the Bank of England base rate. • Under clause 20(3)(b)(ii), the Summary Court would also be able to order the employer to pay the worker damages of up to £5,000, but only if the employer’s conduct were to justify those damages. Under clause 28(2), the Summary Court would have to take guidance issued by FIG into account when deciding whether or not to award damages and, if so, how much to award.

9 • The normal rule in court proceedings is that whoever loses the case has to pay costs to the winner, but, under clause 20(4), costs would not normally be awarded in minimum wage claims.

However, clause 20(4) would still allow the Summary Court to award costs against: o a worker who has brought a case to court unreasonably; or o against a worker or employer who has conducted the court case in an unreasonable way. Under clause 28(2), the Summary Court would have to take guidance issued by FIG into account when deciding whether or not to award costs and, if so, how much of them to award. Clause 21 deals with complaints in the Summary Court by workers who have been unable to resolve disputes about access to their employers’ minimum wage records: • The effect of clause 21(1)(a) is that a worker would have to go through the procedure in clause 18 before making a complaint to the Summary Court.

• Clause 21(1)(b) deals with the circumstances in which workers could make a complaint to the Summary Court about access to employers’ records. • Under clause 21(3), the time limit within which a complaint must be made would normally be 3 months – however, the Summary Court would be able to extend that time limit in certain circumstances. • Under clause 21(4), the Summary Court would be able to order the employer to produce records if it agrees that the employer has breached the worker’s right of reasonable access to records.

• Under clause 21(5)(a), the Summary Court would also be able to award damages for a loss that the worker has actually suffered because of the breach of that right.

• Under clause 21(5)(b), the Summary Court would also be able to order the employer to pay the worker damages of up to £5,000, but only if the employer’s conduct were to justify those damages. Under clause 28(2), the Summary Court would have to take guidance issued by FIG into account when deciding whether or not to award damages and, if so, how much to award. • The normal rule in court proceedings is that whoever loses the case has to pay costs to the winner, but, under clause 21(6), costs would not normally be awarded in minimum wage claims.

However, clause 21(6) would still allow the Summary Court to award costs against:

10 o a worker who has brought a case to court unreasonably; or o against a worker or employer who has conducted the court case in an unreasonable way. Under clause 28(2), the Summary Court would have to take guidance issued by FIG into account when deciding whether or not to award costs and, if so, how much of them to award. Clause 22 deals with situations in which a worker has been dismissed and claims that this is related to the minimum wage. It provides that claims for unfair dismissal relating to the minimum wage would be dealt with under section 57A of the Employment Protection Ordinance.

Section 57A would be inserted into the Employment Protection Ordinance by clause 30. Clause 23 deals with complaints in the Summary Court by workers who believe that they have suffered other adverse consequences (detriment) because of the minimum wage and/or steps the worker has taken about the minimum wage.

• Under clause 23(3), the time limit within which a complaint must be made would normally be 3 months – however, the Summary Court would be able to extend that time limit in certain circumstances. • Under clauses 23(4) and 23(5), the Summary Court would be given a flexible power to make orders to remedy the detriment and/or to prevent further detriment from happening. • Under clause 23(6)(a), the Summary Court would also be able to award damages for a loss that the worker has actually suffered as a result of the detriment. • Under clause 23(6)(b), the Summary Court would also be able to order the employer to pay the worker damages of up to £5,000, but only if the employer’s conduct were to justify those damages.

Under clause 28(2), the Summary Court would have to take guidance issued by FIG into account when deciding whether or not to award damages and, if so, how much to award. • The normal rule in court proceedings is that whoever loses the case has to pay costs to the winner, but, under clause 23(7), costs would not normally be awarded in minimum wage claims. However, clause 23(7) would still allow the Summary Court to award costs against: o a worker who has brought a case to court unreasonably; or o against a worker or employer who has conducted the court case in an unreasonable way. Under clause 28(2), the Summary Court would have to take guidance issued by FIG into account when deciding whether or not to award costs and, if so, how much of them to award.

11 Part 10 – Reversal of burden of proof Clause 24 deals with the burden of proof in minimum wage cases: it provides that someone bringing a minimum wage case in the Summary Court would not have to prove certain elements of the claim – instead, it would be for the employer to disprove them. Part 11 – Appeals from decisions of Summary Court Clause 25 provides that decisions of the Summary Court can be appealed to the Magistrate’s Court (but that there is no further appeal beyond the Magistrate’s Court). Part 12 – Restrictions on contracting out The effect of clause 26 would be to prevent workers from contracting out of the right to a minimum wage for their eligible work and from contracting out of their other rights under the minimum wage legislation.

Attempts to contract out would not be given any effect. The only exception to that would be that, if a claim arises, it would be possible for that claim to be settled out of court. However, it would only be possible to settle specific claims that have actually arisen – it would not be possible to “settle” future or potential claims in advance. Part 13 – Publicity, guidance and information for workers Under clause 27, FIG would arrange for publicity about the minimum wage legislation. Clause 28 would allow FIG to issue statutory guidance for employers and workers about the minimum wage legislation.

Under clause 28(2), this guidance would not be binding but the Summary Court could take whether or not the guidance has been followed into account when dealing with minimum wage cases. Under clause 29, employers would be required to provide their workers with information about the workers’ rights under the minimum wage legislation. However, it would be possible for employers to do this by providing workers with copies of the FIG guidance for workers. Part 14 – Consequential amendments Clause 30 would make a consequential amendment to the Employment Protection Ordinance to deal with claims for unfair dismissal relating to the minimum wage: • It would insert a new section 57A into that Ordinance, under which it would be unfair dismissal to dismiss an employee because the employee is entitled to the minimum wage or because the employee has exercised rights in relation to the minimum wage,

12 • It would also insert cross-references to the new section 57A into sections 58 and 63 and the effect of these cross-references would be that: o selection for redundancy relating to the minimum wage would itself be unfair dismissal; and o the qualifying period for unfair dismissal claims would not apply to unfair dismissal relating to the minimum wage. Clause 31 would allow for other consequential amendments to be made by order, if necessary. If this power has to be used, the Governor would normally have to act on the advice of Executive Council.

Part 15 – Transitional provisions Clause 32 would allow for transitional provisions to be made by order.

If this power is used, the Governor would normally have to act on the advice of Executive Council. Part 16 – Application to Crown Clause 33 is intended to make it clear that the minimum wage legislation applies to Crown as an employer in the same way as it does to other employers. Paragraph 1 of Schedule 1 specifically provides that those employed by FIG and the UK Government are workers for the purposes of the minimum wage legislation. However, not all work for FIG or the UK Government is eligible work (and Schedule 2 deals with that).

Part 17 – Repeal Clause 34 would repeal the Labour (Minimum Wage) Ordinance. That Ordinance dates from 1942, has no current practical effect and is not fit for purpose in the modern era. It is also proposed to repeal another Ordinance dating from 1942, the Labour (Advisory Board) Ordinance, which (again) has no current practical effect and is not fit for purpose in the modern era. That Ordinance would be repealed by a separate Bill. Schedule 1 – “Worker”: special cases Schedule 1 deals with special cases in relation to the definition of “worker”. Schedule 1 is described above in the context of clause 5.

Schedule 2 – “Eligible work”: special cases

13 Schedule 2 deals with special cases in relation to the definition of “eligible work”. Schedule 1 is described above in the context of clause 6.

14 Minimum Wage Bill 2013 (No: of 2013) ARRANGEMENT OF PROVISIONS Clause PART 1 – INTRODUCTION 1. Title 2. Commencement PART 2 – INTERPRETATION 3. Interpretation: defined terms 4. Interpretation: “work”, etc 5. Interpretation: “worker” (with powers for Governor to amend Schedule 1 and to make subsidiary legislation about special cases) 6.

Interpretation: “eligible work” (with powers for Governor to amend Schedule 2 and to make subsidiary legislation about special cases) 7. Interpretation: “pay reference period” PART 3 – ENTITLEMENT TO MINIMUM WAGE 8. Entitlement to minimum wage for each pay reference period 9. Amount treated as having been paid in respect of minimum wage for pay reference period 10. Worker’s entitlement to additional payment if amount treated as having been paid less than minimum wage for pay reference period PART 4 – MINIMUM WAGE RATES 11. Minimum wage rates 12. Minimum wage rates: duty on Governor to set initial rates by order 13.

Minimum wage rates: duty to keep under review and power for Governor to adjust by order